How to Roll Over a 401(k) After You've Left Your Job?
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Leaving a job usually means juggling exit paperwork, handing off projects and figuring out what’s next. In the middle of all that, it’s easy to forget about the money you’ve been quietly building in your 401(k). But what you do with that account shouldn’t be an afterthought. Your next move can affect your taxes, your investment choices and how much of your savings you end up keeping.
A common misconception is that your 401(k) automatically transfers to your next employer. It doesn’t. The moment you leave, the account basically goes into “pause mode.” Your money stays invested, but you can’t add to it. That’s when you need to decide whether you’ll leave the account where it is, roll it into your new employer’s plan, move it to an IRA or cash it out. Each option has trade-offs, so it’s worth understanding how they work before you choose.
What Happens to Your 401(k) After You Leave?
The first step is figuring out your vested balance. This is the portion of your 401(k) that’s truly yours. The contributions you made are always fully vested. Employer contributions, however, may vest gradually. If your company uses a schedule, like 20% vesting per year, you may not keep the full employer match if you leave early. Knowing your vested amount upfront will help you avoid unwelcome surprises.
Your account size also determines what happens next. If your vested balance is under $1,000, your former employer can cash it out by mailing you a check unless you request a rollover. For balances between $1,000 and $7,000, the plan is required to automatically roll the money into an IRA if you don’t give instructions.
Your Choices Once You Leave a Job
The most hands-off option is leaving the account where it is. You’ll keep the same funds and tax benefits, and your money continues growing tax-deferred. But you can’t contribute to that plan anymore, and you’re limited to the investment options chosen by your old employer. It also means managing multiple retirement accounts over the years, which some people find messy.
Another option is rolling your money into a new employer’s 401(k), assuming they accept rollovers. This keeps all your workplace retirement savings in one place, making it easier to track your progress. Just be sure to compare investment options and fees, since plans vary widely. If your new employer’s plan charges higher fees or offers fewer choices, the rollover might not be as appealing.
Rolling your 401(k) into an IRA is a popular choice because it opens the door to a wide menu of investments and potentially lower fees. With an IRA, you choose the provider, the investments and the strategy. It’s flexible, portable and not tied to any employer. This tends to be the preferred option for people who want more control.
Cashing out is the option that offers quick access to your money, but often at a steep cost. If you’re under 59½, you’ll owe income tax plus a 10% penalty on the withdrawal. Even if you’re older, you may face a large tax bill. Cashing out can wipe out years of savings, so it’s usually seen as a last resort.
What to Know Before You Start a Rollover
Before your last day, it helps to gather your account information, contact details and plan rules. Check how much of your account is vested, and ask HR whether you have an outstanding 401(k) loan. If you do, you may need to repay it within 60 to 90 days, or it could be treated as a taxable distribution.
If you're planning to roll your savings into a new employer’s plan or an IRA, consider asking for a direct or trustee-to-trustee rollover. This moves your money directly from one account provider to another. If your old plan sends a check made out to you instead, they must withhold 20% for taxes, and you’ll only have 60 days to deposit the full amount into another retirement account. If you fail to do that, the IRS treats it as a withdrawal, and you may owe taxes and penalties. A direct rollover avoids all of this.
How Long You Have to Move Your 401(k)
You generally have 60 days to complete a rollover once a distribution is issued to you. Missing this deadline creates tax consequences, so acting quickly matters. If you’re repaying a 401(k) loan, you may have up to 90 days, depending on plan rules.
The Bottom Line
Rolling over a 401(k) after leaving a job is simpler than it seems, but it’s important to understand your vested balance, your plan rules and the tax implications. Whether you keep the money where it is, move it to a new plan or open an IRA, the best choice depends on your financial goals and how much control you want over your investments. With a little planning before and after your last day, you can make sure your retirement savings stay protected and continue growing long after you’ve left the job behind.